December 15, 2015

Japan Bets Big on India

In the early 1990s, just a few years after the Tiananmen
Square crackdown drew international opprobrium, China began raking in foreign
investment. Between 1990 and 1996 some $435 billion was committed to China,
helping to fuel that country’s transformative economic modernisation. Japanese
pledges during that period accounted for a significant proportion, including
almost 11% of total investment into Shanghai. At the same time, Tokyo was
committing similar amounts to the Asian Tigers (Singapore, Hong Kong, South
Korea and Taiwan) and to the emerging economies of Southeast Asia (Thailand,
Indonesia and Malaysia).

If there is one takeaway from Prime Minister Shinzo Abe’s
just concluded visit to India, it is that Japan is willing to make the same big
bet on India that it once did on China and Southeast Asia. During Abe’s visit,
Japan and India signed a spate of agreements – 16 in all. But there were four
developments of major significance.

The first was the much-anticipated agreement to introduce
high-speed railway technology between Mumbai and Ahmedabad, with financial and
technical assistance from Japan. If seen through to its full conclusion, this
agreement has the potential to create a valuable demonstration effect for
Indian infrastructure, much as Hyderabad showed that India could have
world-class airports or Delhi demonstrated the possibility of efficient and
safe metro rail systems.

Neither was considered possible in India until they happened,
and their successful implementation saw demand increase around the country for
similar ventures. Today, 15 metro transit systems are in operation or under
construction in India. The Mumbai-Ahmedabad highspeed railroad could,
consequently, be the start of something much bigger for India.

The low-interest loan to develop an Indian ‘bullet train’
may have stolen the headlines, but Japan’s commitment to create a $12.4 billion
financing facility to “help materialise Make-in-India” is no less significant.
This is in addition to almost $1billion in overseas development assistance to
projects in Bengaluru, northeast India and Jharkhand, following on a similar
$1billion commitment to metro rail projects in Chennai and Ahmedabad. Taken
together, this is beginning to emulate the scale of investment that allowed the
Chinese and Southeast Asian economies to take off in the 1980s and 1990s.

Three, the long-awaited agreement for cooperation on
peaceful nuclear energy has implications far beyond the bilateral relationship.
Japan’s civil nuclear industry, still hurting from the 2011 Fukushima Daiichi
nuclear accident, is deeply integrated with the industries of other countries,
notably the United States. For India to truly access global nuclear markets, a
Japanese decision to allow the sale or transfer of civilian nuclear technology,
material and fuel was necessary.

Beyond that, Japan’s faith in India’s stewardship of
nuclear technology is an emotional issue, it being the only country to have
suffered nuclear attacks at Hiroshima and Nagasaki in 1945. That was the reason
that India’s 1998 nuclear weapons tests were a major setback for bilateral
relations, so much so that just 15 years ago even the visit of a Japanese prime
minister to India was considered ground-breaking. It represents a complete
turnaround in relations that Japan is today willing to entrust India with the
sale of nuclear material, as a responsible nuclear power outside the nuclear
NonProliferation Treaty (NPT).

If there was one issue that went unfulfilled during Abe’s
visit, it was the inability to seal an agreement on the sale or joint
production of US-2 aircraft, although the intention to work towards such an
agreement in the future was mentioned specifically in the bilateral joint
statement. Such an arrangement has been on the cards for two years.

But even that was offset by two important security
agreements, one to share defence equipment and technology and the other to
facilitate the sharing of classified military information. Additionally, India
and Japan agreed to begin talks between the two countries’ air force staffs,
thus institutionalising formal contacts between all three branches of the
military.

Japan got something quite significant in return: India
“welcomed and supported” Japan’s recent legislation to expand the scope of its
use of force overseas. This is an important aspect of India’s facilitating
Japan’s evolution into a ‘normal’ military power, unencumbered by its
constitutional limitations on the use of force.

The latest raft of agreements sealing a closer economic
and security partnership between India and Japan builds upon 15 years of work
by several governments in both countries. Just as Prime Ministers Atal Bihari
Vajpayee and Yoshiro Mori helped normalise relations after the Pokhran tests,
and Junichiro Koizumi and Manmohan Singh foresaw the strategic potential of the
relationship, Abe and Modi have the political capital, economic agendas, and
strategic impetus to realise the relationship’s full potential.

Still, much work needs to be done, particularly on the
Indian side. Japan has made a strong pledge to help build up India’s economy
through technological and financial assistance, in a manner in which few of
India’s partners – not even the United States – are currently capable of committing.
It is up to India now to leverage that.

If India is to fulfil its economic potential – much as
China and Southeast Asia did before it – Japan will be an indispensable
partner.